Dec. 7 (Bloomberg) -- Tyson Foods Inc., the largest U.S.
chicken producer, is among companies set to gain after cutting
output to restore profitability following a glut of meat.

The industry was spurred into action after suffering months
of losses amid higher feed costs and sluggish demand, said Mike
Cockrell, chief financial officer at Sanderson Farms Inc.
Chicken producers Townsends Inc. and Allen Family Foods Inc.
declared bankruptcy in the past year as meat prices fell and
inventories rose.

The number of hens laying eggs in the U.S. to produce
chicken meat stood at 50.2 million on Nov. 1, the smallest since
December 1996, Department of Agriculture data show. U.S.
chicken-meat output will drop 1.7 percent next year, the USDA
said Nov. 9. Corn, which is used as feed, has fallen 25 percent
since touching a three-year high of $7.93 a bushel in June and
futures prices show further declines in the second half of 2012.

“Profits for the chicken industry are likely to be good
and could be great,” Farha Aslam, an analyst at Stephens Inc.
in New York, said in a report Dec. 1. “Production discipline
will remain in place longer than is typical given 2011 may be
the most difficult year in the history of the chicken
industry.”

Losses at U.S. chicken processors, which have averaged 10
cents on each pound of meat this year, narrowed to 2 cents a
pound at the beginning of December from 14 cents in July,
according to Stephens. Georgia Dock whole-bird prices, a proxy
for what retailers pay processors, were 89.75 cents a pound
today, up 5 percent from a year earlier.

Pilgrim’s Pride

Tyson, the largest U.S. meat processor, fell 0.3 percent to
$20.31 at the close in New York. The stock, which has climbed 18
percent this year, will advance 12 percent to $22.67 in the next
year from today’s closing price, according to the average of 12
analysts’ price targets compiled by Bloomberg.

Pilgrim’s Pride Corp., a unit of Brazil’s JBS SA, has
fallen 12 percent in 2011. The shares will increase 18 percent
in the next 12 months from today’s closing price, according to
analysts’ estimates. Laurel, Mississippi-based Sanderson has
advanced 32 percent this year and will drop 4.2 percent in the
next 12 months from today’s closing price, according to
analysts’ estimates.

Lower Chicken Output

Tyson’s chicken unit returned to profitability in its
fiscal first quarter, which began Oct. 2, after a loss in the
fourth quarter of fiscal 2011. The Springdale, Arkansas-based
company’s chicken output is 6 percent lower than a year ago,
Chief Executive Officer Donnie Smith said Nov. 21. Earnings per
share will rise to more than $2 in fiscal 2012 from $1.97 in
fiscal 2011, he said. Gary Mickelson, a Tyson spokesman,
declined to provide further comment.

Quick-service restaurants also will place a “renewed
focus” on chicken dishes in 2012 to deal with “high” ground-beef prices, Smith said. Ground-beef prices averaged $2.876 a
pound in October, the highest since at least 1984, U.S.
government data shows. Tyson also produces beef and pork.

Tyson is the largest U.S. chicken producer by volume,
followed by Pilgrim’s, closely held Perdue Farms Inc., Sanderson
and closely held Koch Foods Inc., according to industry magazine
WATT PoultryUSA.

Pilgrim’s will return to profitability in the second
quarter of 2012 after five straight quarters of losses,
according to the average of three analysts’ estimates.

Production Cuts

While recent production cuts likely will result in higher
prices, the key is to prevent supply growth from exceeding
demand, said Pilgrim’s CEO Bill Lovette.

“We must be aware of demand for the various parts of the
chicken by retail, food-service and export channels so that as
we continue to navigate an extremely volatile input cost
environment, we’re able to produce and to sell those products at
profitable levels,” Lovette said in an e-mailed statement.

Sanderson will be profitable again in the second quarter of
fiscal 2012, which began Nov. 1, after a year of losses,
analysts’ estimates show.

“The length of the cycle, both of reduced demand and high
feed for 12 months, is unprecedented,” Sanderson’s Cockrell
said in an interview on Dec. 5.

Demand for chicken fell as unemployed U.S. consumers dined
out less, Cockrell said. Feed costs also rose as corn prices
advanced on demand from export markets and domestic ethanol
processors. U.S. corn inventories before the next harvest
measured as a percentage of consumption will shrink to the
lowest since 1996, according to USDA data.

Feed Costs

Corn futures in Chicago fell 0.6 percent to $5.9275 a
bushel.

Tyson said in November its chicken unit paid $675 million
in additional feed and ingredient costs in the last fiscal year.
Corn, soybean meal and other feed ingredients made up 69 percent
of Tyson’s cost of raising chickens, up from 42 percent a year
earlier, the company said in a filing.

“Corn is still very high relative to historical prices,
but it is coming down,” Cockrell said. “Prices for chicken
have improved, which is unusual for this time of year. That is
fueling some optimism that these cuts are going to be enough.”

Georgia dock whole-chicken prices have risen 3.2 percent
since July 1 while dropping 2.6 percent in the same period a
year ago.

Still, Cockrell said that while chicken headcounts are
down, bird weights need to be monitored because that could slow
the total reduction in pounds.

The improved outlook for chicken in fiscal 2012 is
“largely priced in” to Tyson’s shares, Robert Moskow, a New
York-based analyst for Credit Suisse AG who rates the shares
“neutral,” said in a Nov. 21 report.

“The market has turned,” Joseph Grendys, CEO of Park
Ridge, Illinois-based Koch Foods, said in an interview on Nov.
29. “2012 is going to be a productive year.”